CAPE TOWN - It was another bleak week for Sasol shareholders, who have seen the value of their shares plunge by more than 35percent in the last three months, and more than 8percent over a week.
Hitting the price on Thursday by more than 6percent was more bad news from Sasol’s Lake Charles Chemicals Project in Louisiana, where cost overruns at the ethane cracker and derivatives unit carried the larger portion of the blame for the group writing down its assets by R18.1billion in a trading statement that was issued on the day.
However, Sasol is trading at quite a low P:E of 9.5.
So yes, earnings are declining, but to my mind, there is value in the outlook, and looking past the immediate headlines.
The first words of the trading statement note: “Sasol’s foundation business is expected to deliver resilient results with a strong volume, cost and working capital performance, despite a weak macroeconomic environment resulting in lower chemical prices and petrol differentials”.
So the core business is performing well. Petrol sales are government regulated. Synfuels sales have beaten the group’s own guidance this year. The rand, while it may depreciate some, is unlikely to strengthen in the short term.
The Brent crude oil price appears steady in the $60-$70 (R855-R998) per barrel range. Its risk too, is towards the upside. The share looks cheap.
So what’s with the slow sink in Vodacom shares? Over six weeks the price is down 8percent to R116.85 that it was trading at on Friday. The three and five-year historical trend of the share is down - the price breached R170 in 2017.
A trading update for the quarter to June 30 showed group revenue up 4.2percent to R21.5billion, mainly due to strong 19.6percent growth in international service revenue. Service revenue in South Africa was affected by reduced out-of-bundle data rates, although 608000 customers were added locally in the three months.
Vodacom’s largest market South Africa remains under pressure, because of the weak economy, the black empowerment deal was expensive and, more recently, the government has moved to cut out-of-bundle data rates.
In addition, MTN and Telkom are fighting back hard with promotions. Telkom has been adding customers aggressively this year.
And MTN’s revenue is growing much faster than Vodacom’s.
No doubt what Vodacom shareholders would really like it to be able to see the kind of revenue growth that characterised the early evolution of cellphones. There is a whole digital revolution waiting to happen in the broader, and currently fragmented financial services arena, to be delivered via mobile - Vodacom should build on its M-Pesa platform.
Another share drifting lower on Friday was Shoprite. Its price was only 0.1percent lower to R147.79 by midday Friday, but over a week, the decline in Africa’s biggest food retail group came to 8percent. What’s more, the share price trend is consistently down from March last year, compared with competitor Pick * Pay’s share price, which has held up relatively better.
Economists have been warning about rising food inflation in the months ahead, which, for cash-strapped higher income consumers, will be offset by the lower interest rate. Lower income earners who are getting below inflation rate salary increases however, simply have to buy down, or buy less when food prices increase. Not good for Shoprite sales however.
A surprise stock in the top 10 share movers on Friday was Capital & Counties Properties (Capco), one of the biggest listed property groups in central London, which owns Covent Garden Garden Estate and Earl's Court Estate. The share price of the JSE-secondary listing increased 2.9percent to R38.49 by midday Friday.
The company is planning to split and separately list by the end of 2019 two companies: Covent Garden, a leading retail and dining area in central London that caters to more than 40 million visitors a year, and Earl's Court Estate, where there are plans to build up to 10000 houses in London, which is a massive developmental undertaking.
Capco’s share price, which has fallen steadily since 2016, has, like other UK property groups, been affected by Brexit. But Brexit will pass, while London’s land shortage won’t, so long-term investors might view these shares cheap at the price, particularly if you are going to get two opportunities for one, fairly soon.
The share price of South Africa’s biggest short-term insurance company Santam sagged 2.23percent by lunch-time on Friday, bringing its price slump to 6percent over a week.
Maybe shareholders were miffed that the market leader had not managed to scoop Alexander Forbes’s short-term business that was put up for sale in March - Momentum Metropolitan announced this week it was buying the business for close to R2billion.
It was an over-reaction on Santam’s share price. It will take time for Alexander Forbes’s short-term insurance unit to bed down into Momentum’s existing insurance operations, and then some more time to start gaining any real traction in the market.
In the meantime, there have been no major catastrophes to indicate that Santam won’t repeat the robust results it produced last year.